RPT-Wall Street Week Ahead: Attention turns to financial earnings

By Gabriel Debenedetti

NEW YORK Jan 13 After more than a month of
watching Capitol Hill and Pennsylvania Avenue, Wall Street can
get back to what it knows best: Wall Street.

The first full week of earnings season is dominated by the
financial sector - big investment banks and commercial banks -
just as retail investors, free from the "fiscal cliff" worries,
have started to get back into the markets.

Equities have risen in the new year, rallying after the
initial resolution of the fiscal cliff in Washington on Jan. 2.
The S&P 500 on Friday closed its second straight week of gains,
leaving it just fractionally off a five-year closing high hit on
Thursday.

An array of financial companies - including Goldman Sachs
and JPMorgan Chase - will report on Wednesday.
Bank of America and Citigroup will join on
Thursday.

"The banks have a read on the economy, on the health of
consumers, on the health of demand," said Quincy Krosby, a
market strategist at Prudential Financial in Newark, New Jersey.

"What we're looking for is demand. Demand from small
business owners, from consumers."

EARNINGS AND ECONOMIC EXPECTATIONS

Investors were greeted with a slightly
better-than-anticipated first week of earnings, but expectations
were low and just a few companies reported results.

Fourth-quarter earnings and revenue for S&P 500 companies
are both expected to have grown 1.9 percent in the past quarter,
according to Thomson Reuters I/B/E/S.

Few large corporations have reported, with Wells Fargo
the first bank out of the gate on Friday, posting a
record profit. The bank, however, made fewer mortgage loans than
in the third quarter and its shares were down 0.8 percent for
the day.

The KBW bank index, a gauge of U.S. bank stocks, is
up about 30 percent from a low hit in June, rising in six of the
last eight months, including January.

Investors will continue to watch earnings this Friday, as
General Electric rounds out the week after Intel's
report on Thursday.

HOUSING, INDUSTRIAL DATA ON TAP

The coming week will also feature the release of a wide
range of economic data.

Tuesday will see the release of retail sales numbers and the
Empire State manufacturing index, followed by CPI data on
Wednesday.

Investors and analysts will also focus on the housing starts
and the Philadelphia Federal Reserve factory activity index on
Thursday. The Thomson Reuters/University of Michigan consumer
sentiment numbers are due on Friday.

Jim Paulsen, chief investment officer at Wells Capital
Management in Minneapolis, said he expected to see housing
numbers continue to climb.

"They won't be that surprising if they're good, they'll be
rather eye-catching if they're not good," he said. "The
underlying drive of the markets, I think, is economic data.
That's been the catalyst."

POLITICAL ANXIETY

Worries about the protracted fiscal cliff negotiations drove
the markets in the weeks before the ultimate Jan. 2 resolution,
but fear of the debt ceiling fight has yet to command investors'
attention to the same extent.

The agreement was likely part of the reason for a rebound in
flows to stocks. U.S.-based stock mutual funds gained $7.53
billion after the cliff resolution in the week ending Jan. 9,
the most in a week since May 2001, according to Thomson Reuters'
Lipper.

Markets are unlikely to move on debt ceiling news unless
prominent lawmakers signal that they are taking a surprising
position in the debate.

The deal in Washington to avert the cliff set up another
debt battle, which will play out in coming months alongside
spending debates. But this alarm has been sounded before.

"The market will turn the corner on it when the debate heats
up," Prudential Financial's Krosby said.

The CBOE Volatility index a gauge of traders'
anxiety, is off more than 25 percent so far this month and it
recently hit its lowest since June 2007, before the recession
began.

"The market doesn't react to the same news twice. It will
have to be more brutal than the fiscal cliff," Krosby said. "The
market has been conditioned that, at the end, they come up with
an agreement."
(Reporting by Gabriel Debenedetti; editing by Rodrigo Campos
and Nick Zieminski; Wall Street Week Ahead moves every Sunday.
Questions or comments on this one can be sent to
gabriel.debenedetti(at)thomsonreuters.com)

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